PayPal Holdings, Inc. (PYPL) SVB MoffettNathanson’s Inaugural Technology, Media and Telecom Conference Call Transcript

PayPal Holdings, Inc. (NASDAQ:PYPL) SVB MoffettNathanson’s Inaugural Technology, Media and Telecom Conference Call May 16, 2023 10:00 AM ET

Company Participants

Peggy Alford – EVP, Global Sales

Conference Call Participants

Lisa Ellis – MoffettNathanson

Lisa Ellis

All right. Terrific. Thank you. Welcome, everyone, to our 10 a.m. session this morning, our first converged conference, so it’s very fun to see some of our payments friends as well as our broader TMT friends in the audience.

I’m Lisa Ellis, for folks that maybe are less familiar with me. And I’m delighted, for our next fireside chat, to be joined by Peggy Alford, the Executive Vice President of Sales at PayPal. Peggy, thank you for being here.

Peggy Alford

Thanks for having me.

Lisa Ellis

And folks, if you remember, we have this fancy Q&A technique this year. There is a QR code up on the screens. If you want to ask a question, do that. If that fails you, you can also feel free to just wave your arm in the air as well, if you need to, but I will see any of them on my screen up here.

Question-and-Answer Session

Q – Lisa Ellis

All right. So Peggy, why don’t we just start — jump in? Some folks may be less familiar with you, but you have been at PayPal for a long time and have held a wide range of roles there. So why don’t you just give us a little bit of that background?

Peggy Alford

Sure. Yes. So I first joined eBay when eBay and PayPal were one company in 2002, came from consulting where I had done auditing and M&A and did a number of finance roles at eBay, and then ran, which is an online apartment listing site that eBay used to own, for about 6 years. And then joined PayPal in 2011, and I had some finance roles to start out with.

I ran global cross-border trade. I co-ran HR for a while. And then I actually left for a couple of years to help Mark Zuckerberg and his wife, Priscilla, start their foundation, Chan Zuckerberg Initiative. I was the CFO and Head of Strategy and Operations there for about 1.5 years. And then came back to PayPal in a sales role, ran our core markets first and then took over global sales in 2020.

Lisa Ellis

All right. And so what brought you back? Like what led you or attracted you to come back to PayPal when you rejoined?

Peggy Alford

Well, when I left, it really was — they say always run 2 things and not away. And it really was, I just felt like being able to join this philanthropy, which had tremendous funding and was really focused on using technology at scale was something I wanted to do. It was very different from PayPal. But I always sort of stayed in touch with everyone at PayPal, I love what PayPal does.

But I will say that there were a few things that really caused me to think that it was time for me to come back. One was probably a number of you are aware of our sort of shift in strategy around really partnering as part of growth, and the partnering with the financial institutions, partnering with the largest brands in the world, those that we would also consider to be competitors, we felt like there was a role that we could be playing and really partnering as well for growth, and that was something that was interesting to me.

We also did a number of acquisitions. We always talked about PayPal as a platform, but there were some holes. And I felt like some of the acquisitions we did, whether we’re talking about Zettle or Swift on the credit side. We had done the Braintree acquisition, got Venmo with that. We had — we were doing a lot of work to sort of just bolster that platform. And I felt like the sort of strength of the network with the scale, but then sort of filling in these holes with some capabilities that would really help customers of all shapes and sizes grow was something that was interesting.

And then the last was just I think that PayPal has always been a value-driven company. I think a lot of times, I always joke that you watch the Super Bowl and you see an ad and you’re like, that was so inspiring, but I have no idea what they sell. Because it’s not a natural thing to do good in the world, but also do well for shareholders. And for PayPal, I always felt like there was a natural synergy where you could sort of enable a platform that could sort of level the playing field for both businesses and consumers, but also the scale we had enabled us to just do really well for shareholders as well, and I like that combination.

Lisa Ellis

All right. Well, let’s go back to basics with PayPal and talk about the value proposition. Let’s start with branded checkouts. This is kind of going back to the core of PayPal, been around since the advent of the public Internet back in the late ’90s. Why do merchants adopt the PayPal branded checkout button?

Peggy Alford

Yes. Well, the branded PayPal button is sort of the bread and butter of PayPal’s. Historically what we were known for when I joined PayPal and — joined eBay in 2002, the majority of the business was enabling eBay purchases with the PayPal button. And then quickly, we grew this off PayPal — or off eBay business through merchant services. And we’ve just expanded so much from there.

I think we always talk about PayPal with sort of you’ve got the wallet and then you have the network, which is sort of the — where the merchant and the consumer side come together with our branded propositions and then you’ve got our unbranded processing business.

In the branded business, merchants are really interested only in how they grow their business and how they reach consumers, how they enable transactions or bigger basket size. And PayPal has been able to — with the scale we have, the number we operate in 200 countries. We stand for security. If you don’t want to put in your credentials as a consumer, merchants know that they — when they have the PayPal button, it inspires trust.

We are able to demonstrate that we increase conversion for merchants when consumers not only see the button but use the button. And so it’s just — it’s something that merchants love because consumers love. And we’re on 80% of the top 1,500 brands in the U.S. and Europe and that breadth and the ability for consumers to see us regularly on small and large merchants is what merchants love.

Lisa Ellis

And now talk about the intersection of branded with unbranded over the last, as you highlighted. PayPal’s had an unbranded platform for a long time, but really got a jump start about a decade ago when you bought Braintree. That platform has now been growing 20%, 30% plus these last few years. So just — how does the value proposition work at the intersection of branded and unbranded?

Peggy Alford

Yes. I love to talk about this because it is true that the Braintree business has grown substantially. I think it was 43% growth in 2022. And over the — as you mentioned, over the last few years, 20%, 30%. And we are one of the major players in the space.

And I think a lot of folks, investors and analysts question the growth because of the fact that it doesn’t have the margin profile that the branded business has. But the strategic value of the unbranded platform is one that is just so important. So I’ll tell — for a few reasons.

Number one, when we deepen our relationships with merchants by doing their processing and then combining it with our branded business, suddenly, we are extremely relevant in the payments ecosystem of these merchants. Braintree is also on our latest integration. So when we are able to sell processing — our processing business to these merchants, we are then upgrading the integration.

We have a lot of legacy integrations because we’ve been around for a long time. And there really is no reason for a merchant to just do a bunch of work, open the engine, do a bunch of work to get the latest integration if — unless there’s a value add.

And when we can sell process to them, we get the latest integration. And therefore, we are able to have the very best consumer experience for our branded business, whether we’re talking about Buy Now, Pay Later, whether we’re talking about the branded PayPal button, whether we’re talking about Venmo. So you’re able to sort of upgrade the integrations and create a much better consumer experience for these merchants.

The other thing is the data. So we get very different data on our unbranded platform and our branded platform. But together, it can create a much more relevant experience for consumers on — and we can fuel an accelerated checkout product that we’re developing to really create much better converting experiences for our merchants and much more relevant consumer experiences along the way. And so together — it’s sort of like the ability to sort of together create an ecosystem or a platform that merchants want.

There is also — and we’ll talk about the unbranded side. There is actually — we have a lot of strategic plans that are coming to fruition in order to increase the margin of our unbranded business. So we do not have a strategy to slow down the growth of our unbranded business, quite the opposite.

We will continue to grow the volume, and we have a lot of merchants in the pipeline that we are adding on the unbranded side. So the focus is really about, number one, increasing the margin of the unbranded business; and number two, creating this sort of comprehensive solution that combines our branded and unbranded business.

Lisa Ellis

Got it. Okay. Another piece that you’ve also added over the years is a suite of value-added services that you wrap around either the branded or the unbranded business, in particular, your lending business, working capital loans and also the consumer loans, but also things like your payout capabilities for platforms and some data and analytics products.

So which services — from your vantage point working with merchants every day, which of your value-added services do you find they ask for the most and are the most differentiated out there?

Peggy Alford

Yes. Well, I’ll start with one that has been around for a little while. It was actually one of the acquisitions that happened while I was gone and that’s Hyperwallet. So 4 businesses that actually have both a pay-in and a payout need. Marketplaces is a perfect example of that. The Hyperwallet payout product has been extremely relevant and very popular on its own.

But if you can then create a solution where you’re able to manage both the pay in and pay out in sort of one experience that is extremely beneficial. So TikTok started out using our Hyperwallet product first. And now they’re using our Pay with PayPal and Pay with Venmo for the ad purchases. So the payout solution was used for paying out creators. And now we’ve just sold the unbranded business as well.

So if you think about all of those things in combination, not only do you create a higher-margin business overall because you’ve got payouts, which is higher margin, you’ve got our branded PayPal and Venmo and then you have the processing business all working together. And so that would be an example of value-added service bolted on to the unbranded business that creates higher margin, but also higher value for the merchant.

Lisa Ellis

And so just taking a step back, from a competitive perspective, PayPal has been the leader in this space for so many years, and you have a number of competitors, both in branded and unbranded. So what ultimately sets PayPal apart relative to your competitors in both the branded and unbranded side?

Peggy Alford

Yes. So first, I would say it’s the fact that we are the combination of the 3. Whenever we think about competitors, we think about competitors in each of the areas. So whether you’re talking about the wallet, right, which is we’re competing with banks. We’re competing with sort of the traditional wallet players that have P2P, that have remittances, things like that.

And then we’ve got our network, which is the branded business. And so if you think about some of our competitors in that space, Apple Pay would be example. And then you think about our processing business, there are competitors, the Adyens of the world and the Stripes of the world, our competitors in that area. But no one has all 3 and they all work together in a way that is cohesive and builds business at scale.

The other thing that I would say is just the scale, right, 430 million consumers, over 30 million businesses worldwide in 200 countries. The scale that we have, and so therefore, the ability for us to really create this network that is massively valuable for merchants and consumers alike is something that is difficult to compete with. And so I think it’s just the combination. So each one of the pieces, we feel like we have some differentiators that enable us to compete.

The reason we’ve grown the unbranded business so well is because our auth rates are better. We hear from merchants in the space that even before we were able to pick some of the product gaps on the branded — on the unbranded side with Braintree, they were wanting to partner with us because our — number one, our auth rates were better; and number two, we actually had servicing that they needed, especially if you — when you’re talking about payment processing at scale, it needs to work and you need to be able to call someone if it doesn’t.

And so the servicing side of the business has been something that’s been a differentiator. But — so each of the pieces, we’ve got the value prop sort of differentiators, but together, it’s very powerful.

Lisa Ellis

So in your role as the Global Head of Sales, you obviously run all of the sales and distribution of PayPal globally. You also, given your tenure at PayPal, have seen merchants through their full life cycle. And you just mentioned the TikTok example where you started with 1 product and have added. So can you talk a bit about how an overall merchant relationship typically evolves over time? And maybe as an example of how these pieces work together.

Peggy Alford

Sure. One of the things — I think because I come into the role having worked in a number of parts of the company, I have a real appreciation for if you are serving the customer. you need to make sure that all the pieces fit together, right? So there’s the sort of presale solutioning where you’re really thinking about what does this — what is the sort of makeup of this merchant? Who are they serving? What is their platform like? What — how do our products need to fit with them in order for it to work, right?

Then there’s the sort of when you’re integrating the products and you’re thinking about we need to take the complexity out as it relates to the regulatory environment, the ability to manage risk, the servicing side, what’s going to happen when they have an issue or their consumers have an issue. We need to make sure that we’re working across the company to make sure that we’re selling the right thing, we’re integrating the right thing and then it’s working at scale. And so we think about all of those things from a sales perspective when we’re selling because that’s what makes a relationship deep.

And that also is what enables you to have a seat at the table do the, okay, the initial product that they’re going to integrate is going to be the PayPal-branded button. It’s historically what they’ve used with us. But as we’ve sort of innovated, we can fit a lot of other — you can use Venmo. You need to reach the younger demographic. You can use Payouts, if that’s relevant. You can — we can start processing your payments.

Being able to have those discussions requires that we have a deep understanding of what they need to run their business, how they’re going to reach consumers and how our products can fit in company-wide to really operate as a platform.

Lisa Ellis

All right. And so looking forward now, particularly on the merchant side of the equation, who — the folks that are ultimately the ones that generate the revenue primarily for PayPal. What are the merchants’ kind of top pain points from here? And how are you addressing them? What does that road map look like in terms of the merchant value proposition?

Peggy Alford

Yes. Well, what’s interesting is we are serving merchants across the globe. We are serving different types of merchants. We’ve got those that are the small businesses that are integrated through partners. And so we have to manage both the channel partner and also the end merchant. We have the smallest business that is operating with 1 website. And then we have the largest enterprise with — from the likes of Walmart.

And so we’re really thinking about how to make sure that our solutions, especially for the small merchants where it all needs to work and they can’t worry about it. It has to be an integrated solution without complexity. And so we’re continuously working, not only on bolstering our checkout products as an example. That’s an initiative for us that is something that is all hands on deck, just really increasing the conversion of that checkout product and the selection rate for consumers to actually choose PayPal.

And then if you think about our unbranded solution, we’ve done a lot of work over the last 2 or 3 years just to make sure that all of the features and functionality, if you are going to be someone’s processing partner at scale, are working. And so that’s everything from improving the auth rates to increasing the stability, making sure that the uptime is always there, thinking about the reporting side of the house so that when you’re thinking about not only the pay-in part of it, but how you’re going to reconcile that with your infrastructure. Those are all things that spent a lot of time bolstering.

And then making sure that everything can be integrated with one set of work, right? So because a lot of these products were acquisitions, when we first acquired them, it would have required a different integration every time you wanted to sort of bring on a new product. And so we’ve really been working on with the latest Braintree integration that you can then accept all of our products with just sort of a switch of the button, and that’s something that’s been a lot of focus for our teams over the last years.

Lisa Ellis

And there’s a lot of focus right now on that share of checkout for PayPal. What are some maybe more, I guess, strategic or even more sort of tactical and operational things you guys are doing to make sure you’re maintaining merchant retention, and then also holding on to and gaining share of checkout with merchants?

Peggy Alford

Right. So I think it starts with making sure that the integration that our merchants have is one that it creates the very best consumer experience. And so we do spend a lot of time trying to make sure that we are upgrading the integrations for legacy, for players that have been with us for a long time and have older integrations. And so we’re always trying to make sure that they’re using the latest technology, the latest SDKs so that it creates the very best consumer experience.

And then we’re really working on sort of the latest version of Checkout using AI and machine learning to create much more relevant consumer experiences so that for the merchant, they’re able to identify the consumer that’s looking to buy their exact thing at the right time.

And so there’s a lot of work that we’re using — that we’re doing using data, which comes from both the unbranded side and the branded side to just increase the relevance to enable consumers to have rewards, to enable consumers to use Buy Now, Pay Later, which we know increases conversion and basket size. And so all of these things sort of coming together to create the best consumer experience, which is going to increase branded checkout and therefore, increase our branded revenue.

Lisa Ellis

Got it. Well, I have a couple of topical questions that came in. People know how to use the barcodes apparently, so that’s good. So one, on this point, on the branded checkout, the question is, is the branded Checkout product for PayPal, still a business that can grow in the double digits and why? Or is it just kind of too big and too saturated, I guess, at this point to achieve that level of growth?

Peggy Alford

Yes. Well, I mean we definitely have goals to increase it in the double digits, and that is really about making sure that we are thinking about the next generation of Checkout, which is going to include AI, which is going to use the data that comes from the unbranded business to really create sort of the demographic of the consumer, which enables us to then target in a much better way and enables merchants to be able to target the consumer in a much better way.

We are very much focused on ensuring that we’re able to use all — the flexibility of payments. So consumers, depending on who they are and what they’re buying, they want to be able to use all the various ways to pay within the wallet. We’re also thinking about earlier life cycle where if you think about rewards and our wallet and being able to sort of embed offers and rewards in the wallet to really attract the consumer to focus on why they should be using PayPal and then select PayPal. That is really what’s going to enable the merchants to want to use the very latest integration of PayPal. And so that’s really what we’re focused on, on the branded side.

Lisa Ellis

All right. And another one related to your point about the integration across your different product groups. You recently announced, or in conjunction with Visa, a new initiative aimed at creating interoperability between PayPal and Venmo using a product from Visa. And so the question was, you haven’t commented a lot publicly on that partnership, but why do that with Visa? What was the value that you saw? You’re obviously big partners with them, but doing it with them versus, say, just doing it in-house and having them as an…

Peggy Alford

Yes. I mean I think it just goes back to sort of the reason I mentioned that I loved coming back to PayPal. And that is about we always have to weigh are very scarce product resources and make sure that we’re really focused on time to market and the ability to get scale quickly. And we just felt — if you think about it, Venmo was an acquisition that came through our Braintree acquisition.

And so it’s a — it was a separate platform. And so the ability for us to create this interoperability between Venmo and PayPal quickly with this partnership was something we felt made sense and really gets us to the answer we wanted, which was to enable Venmo consumers and PayPal consumers to work together and also to enable merchants to be able to use both of the products together. So we just felt like it was a way for us to get that done quickly and at scale.

Lisa Ellis

All right. All right. Keep them coming guys from the audience, if you’d like, on using the QR code that’s on the screen. Let’s turn over a bit to some of the sales initiatives that you have underway. You lead the sales organization overall. What are your top priorities right now? And maybe notably, how have those evolved in the last couple of years as PayPal has kind of been going through a transition?

Peggy Alford

Yes. Well, I think a lot about the overall PayPal priorities because it influences everything that my team’s focus on because I’ve got not only the folks that are doing the solutioning upfront, all of those that are selling to the globe and the different segments, whether you’re talking about partner or our largest global accounts or SMB. We — and then also the servicing of those merchants that are providing a lot of those that are already our customers, we have to make sure we’re deepening the relationship there.

And so what I’m thinking about the most, probably is what top of mind for anyone that’s following PayPal, number one, really increasing the relevance and the penetration of our branded products and making sure that we’re selling all of our branded products, whether you’re talking about the PayPal button, continuing to sell that at scale and creating an integration in a way that’s going to create the best conversion.

Our Venmo products, our Buy Now, Pay Later, we’re very much focused. We know that Buy Now, Pay Later increases the basket size as well as the transaction volume for a merchant. And so we’re really focused on getting that upstream. So getting that upstream presentment so that a consumer knows when they’re looking at a product that they can pay in 3 or 4, depending on where you are in the world.

And so really focused on deepening the penetration of our branded product, but we’re also very much focused on — it’s interesting people always say to salespeople care about margin. I care about margin because PayPal cares about margin. And so I know that people have been concerned about our fast-growing unbranded business and the fact, that it is lower margin than our branded business.

And so what I’m focused on are the ways to increase the margin of our unbranded business. And there are sort of 3 ways to do that, that are part of our strategy. The first is to enable through PayPal Complete Payments, the availability of our processing products outside of the U.S.

We know that we are able to — just because of interchange, we’re able to get higher margins on our unbranded products outside of the U.S., especially in Europe, and there is a very high demand for them. And so PayPal Complete Payments enables us to offer our processing products at a higher margin outside of the U.S., which will increase the mix of the U.S. high — mostly large enterprise, which has — comes with smaller unit economics. And so we’re really focused on outside of the U.S.

We’re also focused on smaller. If you look at 2 of our competitors, the reason why our margin structure looks different than theirs is 3 reasons: the being able to have a higher mix outside of the U.S.; being able to have our processing products with smaller merchants where you can demand higher margin or higher pricing; and then value-added services, which we talked about a lot.

So if you think about FX, if you think about payouts, Buy Now, Pay Later, these are all things that bolster the margin of the unbranded business. And so these are the 3 strategies that we have to drastically increase the margins of our unbranded business, which will then, combined with the success we’ve had from a distribution perspective and we’ll continue, will create a business that is much more attractive from a margin perspective overall for PayPal.

Lisa Ellis

Can you talk a bit about sort of from a sales and distribution perspective, what you view as PayPal’s top strengths as well as some of your challenges there and what you’re focused on improving?

Peggy Alford

Yes. So I mean, strengths, I mentioned our scale. It’s interesting as we go through these challenging macroeconomic times, the scale enables us to weather the times and enables us to execute on the strategies that are going to make us stronger. And so that scale not only makes us relevant, but also enables — gives us the sort of capacity to be able to continue to innovate and solve some of these areas where we really do need to focus.

I think the fact that we have the 3 pillars, the wallet, the network and our PSP business and the ability for those to work together and fuel each other is something that is a strength of PayPal. And then I think our brand. I think the brand that consumers equate with security and safety, the brand that merchants sort of think about from a servicing perspective and from a quality perspective. These are all things that are the strengths of PayPal, which enable us to continue to innovate and really follow the changes in consumer behavior.

We also have been — AI is such a hot topic right now. We’ve been using AI within our risk capabilities for years, and we so look forward to being able to use the capabilities of today to not only bolster our risk capabilities, but also enable a much more relevant consumer experience. And that, with our scale, is going to be pretty exciting to use, and the strength of our unbranded business and the data you can get from that fueling that using AI, I think, is tremendously exciting.

I think in terms of our challenges, I mean, we know that we need to increase the margin of our unbranded business, especially with the size that it’s become. And that’s why that’s such a focus for us in the ways that I mentioned. We always — we cannot take our eye off the ball in terms of always ensuring that our latest technology is what our merchants are able to use so that we’re creating the very best consumer experience and have the best shot at the consumers selecting PayPal when they checkout.

We need to continue to innovate on enabling all payment methods, especially if you run a platform that is processing the payments for merchants of all sizes, consumers want to use all payment methods. And so we’re continuing to ensure that we are offering all payment methods.

We will continue to focus on the stability and the auth rates. That’s always something that you want to just continuously iterate and improve on. We’re already best-in-class there, and it’s something that we always have to continue to focus on because our competitors don’t stand still.

Lisa Ellis

Well, on that, another question — lots more questions. Okay. I think everyone loves having Peggy here today. Very exciting.

Peggy Alford

An active group for the morning…

Lisa Ellis

No, I love it. A competitive question here when you’ve got the Head of Sales and Distribution on the hot seat which is, which — what do you find is the most difficult competitive situation that you run into as PayPal? And then how do you go and win in those situations?

Peggy Alford

Well, I think whenever you have a player that has been in the space longer, so on our unbranded side, we spend a lot of time sort of like winning business from competitors that have been in the market already. And that’s where we really have to focus on our differentiators. And so that’s why on the unbranded side I talked about auth rates, I talked about servicing. Those are the reason that we win. A third reason is the fact that we’re able to offer this — or not only offer but are willing to offer an orchestration layer.

If you think about the largest brands out there. They often are using more than 1 PSP, but they wanted to work together seamlessly. If you think about like reporting, what a nightmare if you have like 3 different sort of points that you have to reconcile.

And so the fact that we’re able to offer this orchestration layer enables us to get our foot in the door where we’ll say, okay, well, you’re using this competitor to process, and we can do this orchestration layer. You can — we can instrument and we can handle the volume from the other PSP. Give us some of the volume as a backup processor. And then suddenly, they see our auth rates are better and they see that our stability is better and they see that our servicing is better, and then we’re able to win more and more share. So really focused on that.

On the Buy Now, Pay Later, that would be another one where we have spent a lot of time looking at players that were already in market and seeing that they were writing big checks when they were sort of venture funded and could write these large checks to sort of get exclusivity for 2 or 3 years. And what we’re seeing is that our product works so well, and we’ve been able to have approval rates, which are way better than our competitors that have these exclusive contracts. And so what’s happening as these exclusive contracts have come due, we are winning that business.

And so we are always focused on incumbents and making sure that we differentiate ourselves and go after that business in a way that we can sort of focus on our differentiators and our value prop.

Lisa Ellis

All right. And this is a good related question, so I’ll go ahead and ask it, which is, what do you think or you find when you’re out in the market is most misunderstood about PayPal that you feel like if you could wave a magic wand, right, and have that clarified with merchants would help accelerate your growth?

Peggy Alford

Well, I think that there’s been a lot of criticism of the growth of our unbranded business and the fact that we’ve seen a degradation of our margins because of that mix shift. And what I’ve been wanting to say is like, hold on. We’re just getting started, and we know exactly what we’re going to do to increase the margins of our unbranded business.

And so we’re going to continue — I tell my teams every day, go win. Go win that processing business because it is going to enable us to have a much more valuable branded business. And so the question we had earlier around is there an opportunity for you to continue to have attractive growth rates on the branded business? Absolutely. Absolutely.

And our — the growth of our unbranded business is what’s going to help do that and the unbranded business is going to become a much higher margin business. And we’re not talking about 5, 10 years. We’re talking about this is something — these — the 3 things I mentioned are going to be in market this year.

And so it’s extremely exciting to really see how these 3 businesses are going to sort of bolster each other and will make it difficult to compete against us, and that’s exciting. It’s what we tell our teams every day.

Lisa Ellis

And last one maybe on the competitive side, you probably didn’t think you would escape without a direct question about Apple and Apple Pay. So can you crystallize for us how you go in and sell the value of branded checkout relative to an Apple Pay who can take advantage of their access to the NFC chip and things like that on the phone?

Peggy Alford

Yes. Well, first of all, I think that one of the things that merchants really want, I mentioned this earlier, is the availability of all payment types, right? If you think about our wallet and you think about our processing business, we’re really focused on enabling all payment types that consumers love. And so that’s something that is important to merchants.

The other thing is that we have always operated, as it relates to integrating all payment types, including Apple Pay, by the way, is it’s — we are an open — we operate as an open ecosystem. And merchants like that. Merchants want to own their consumer relationship, and they worry when they don’t — if they lose control of that. And so we’re really focused on making sure that we are partners with our merchants and never competing against our merchants and just enabling their growth.

That said, Apple is a competitor, and it’s something that — it’s the reason we’re so focused on Checkout, it’s the reason we’re so focused on ML and AI, fueling our Checkout product so that we can really create the most relevant consumer experience.

It’s why we’re focused on all of the services that consumers care about, whether you’re talking about rewards, whether you’re talking about offers, all of these things are needed to create and compete in a world where I don’t think there’s 1 player, right? I think merchants want Apple Pay, but they also want PayPal.

Lisa Ellis

All right. And since you just mentioned AI again, and that is not surprisingly a big hot topic over the next few days, so I had one question here about, you mentioned AI assisting in the consumer experience. Can you just give a couple of examples of that to make it tangible for folks?

Peggy Alford

Yes. So I mean one of the things we’re thinking about is, if you take the example of a small business that wants to attract consumers and they have their goods and they’re competing against all other merchants that offer these goods, for you to be able to — for PayPal to be able to see purchase history of the consumer in their past, the types of things that they’re interested in.

If you take, for example, they bought a stroller, oh, well, they probably might need some baby blankets or some bottles or they might — so to be able to take the data from the — both the branded side and the unbranded side and using AI, be able to target consumers in a much more relevant way for that small business. Also to be able to offer a very relevant offer off of something that is extremely relevant to that consumer based on their purchase history. You suddenly can see that you can create a much more targeted experience for merchants to be able to make offers or to be able to attract the consumers to their goods.

Lisa Ellis

All right. One of the other things that you’re heavily involved in at PayPal is the partnership strategy, and this is an area where PayPal has evolved dramatically ever since spinning out of eBay. And you now have a very wide range of partnerships, including players like with Amazon more recently and then also for a long time with the networks like Visa and Mastercard. So up to date now, what is PayPal’s approach to partnerships? And what sort of resonates best in these situations? How do you use those to the benefit of PayPal overall?

Peggy Alford

Right. I mean I think it’s just having a very healthy view of the fact that you can compete and partner for the benefit of merchants and consumers. And so that’s how we think about it. And growing at scale through partnership has been, for the last 8 years or so, something that’s been front and center to how we’ve thought about growth.

On Amazon, enabling Venmo — the reality is Amazon was looking to reach the type of demographic that Venmo attracts and felt like it could be a differentiator with their payment products as well. And we felt like, for Venmo, we have seen a lot of interest from other players like Amazon that now are seeing that this is something that could really help them reach a new demographic. And it is the way that young folks like to pay. And so we thought about it in terms of it’s a way for us to give our value and for them to see the value that Venmo and PayPal can offer.

I think as it relates to — we talked about the example with Visa. We’re always looking for ways to use the scale of our competitors and our partners and us to be able to grow and to create solutions that consumers love. And so when we think about whether we’re talking about our largest retailers that we compete against, but also enable whether we’re thinking about the financial institutions that we both compete with and partner with, we just think about all the ways that we can together use our products to serve customers, both merchants and consumers.

Lisa Ellis

All right. Let me hit on a couple of other quick hot topics before we get to our closing questions. One is just around your international strategy. Historically, international was about half of PayPal’s business. And as you highlighted, certain regions, particularly in Europe, can be a higher-margin business for PayPal and an attractive area.

On the other hand, you had entered some other more developing regions and have pulled back a little bit from some of those over the last couple of years. So just can you update us on sort of how should investors think about the contribution of international going forward?

Peggy Alford

Sure. I mean international is always going to be extremely important to us. What we’ve done is just gotten a little more targeted as it relates — targeted and focused as it relates to what we want to do in each of the markets. So there are markets where we want to focus on having a consumer proposition where we have salespeople on the ground and we’re really focused on building that network, the consumer network and the merchant network.

Think about our core — we call them our core markets. So the U.S. and Canada and Mexico and in Europe, the players like the U.K. and Germany, France, Italy, Spain. These are markets where we have a very strong consumer proposition, and we focus on creating that network that I talked about earlier.

There are other markets where — PayPal is known as a place where we enable and help grow cross-border trade. And so some markets we’re not really going to be focusing on building that consumer proposition, but we’re very focused on enabling global trade. And people, consumers and merchants feel that PayPal is a place where they can safely enable that transaction and grow their business globally.

And so if you think about markets like in Southeast Asia, in China, in Brazil, we’re focused more on that enabling global trade. And in Brazil, we also have a very strong processing business, and so we’re focused on that as well. But we’re not as focused on just building the consumer, the local consumer presence.

We are — we do though — I mentioned our PayPal Complete Payments and enabling processing outside of the U.S. There is a strong demand for that in Europe. We have already sold the Braintree platform, which isn’t the best fit for some of these merchants. And so to be able to use the PayPal Complete Payments product, we know that’s going to take off with our processing and our branded together.

Lisa Ellis

Got it. All right. Two more questions. One, first, I want to touch on the efficiency initiatives that you’ve had underway at PayPal. Just please describe from us — for us from a sales and distribution perspective, right, how have you been able to implement some of these initiatives, while at the same time, maintaining morale and maintaining the level of investment you need to drive the growth you’ve been describing?

Peggy Alford

Yes. Well, first, if I could just step back and think about efficiency, driving efficiency and lowering our cost base overall at PayPal, the reality is because of the change in our mix and the growth, the fast growth of our unbranded business, and they’re — and at a lower margin because the majority of that early Braintree business was in the U.S. with the largest businesses.

And so we talked about the strategy to increase the margin of the unbranded business overall, but we really needed to reset our cost base. And so we needed to think about being very focused. We needed to think about the people we were hiring and making sure we weren’t growing too fast. And so there’s been a lot of focus on just bringing down our cost base overall.

For the — for my organization, when I came back to PayPal, we undertook a full transformation of the sales and servicing organizations really focused on ensuring that we were organized in a way to serve this sort of like multiproduct sale globally, and that we were taking a lot of the layers out, that we were really focused on reducing sort of the cost of selling in general and that we were measuring productivity in a way that enabled us to optimize.

And so that was an exercise that we took on, now it’s been 3 or 4 years ago. It’s something you always iterate on. But I always believe that you should be very cautious in terms of how fast you grow because you always want to keep your costs under control. And so it’s an area that we’re now thinking about PayPal-wide. And you saw in the last earnings that we’ve made a lot of progress already on bringing down our cost structure, and it’s something we’ll continue to focus on.

Lisa Ellis

All right. And just to close, in our final minute. Just looking forward, look, PayPal has been through a tumultuous time over the last 3 years really with the pandemic and then coming off of the pandemic. Looking forward, right, what gets you the most excited about sticking with PayPal and sort of the future of PayPal now?

Peggy Alford

So what I’m so excited about is I hear the criticism in the market. I see the stock price. And I feel like our strategy is exactly on point to change all of that doubt, right? When I think about the focus we have on our checkout business and the huge potential in the white space ahead on that, combined with the margin profile currently versus what it will be with being able to offer PayPal Complete Payments outside of the U.S. to smaller businesses with value-added services and that changing margin profile at the scale that PayPal is, I feel like now is the time to start believing in PayPal.

And I think you got to believe it within first, and I feel so confident that we are doing exactly the right things. And to apply that kind of strategy to a company with the value and the scale of PayPal, is something that I’m excited to be a part of.

Lisa Ellis

All right. Terrific. Well, thank you. Thank you, Peggy.

Peggy Alford

Thank you. Thank you.

Lisa Ellis

It was great to have you with us. Thanks, everyone. Thank you.

Peggy Alford

Thanks so much.